Economy, Side Feature, The Khilafah

Implications of a Greek exit from the Euro


After a resounding no from Greeks to Europe’s bailout programme for the country, the European Union is plunged into its greatest political crisis. As European leaders meet at an emergency summit meeting to discuss the situation, European voices opposed to the stance taken by Greece are hardening. Germany’s Vice-Chancellor, Sigmar Gabriel, warned that Greece was heading for “bitter abandonment and hopelessness” following the vote.  He said, “With the rejection of the rules of the eurozone … negotiations about a [bailout] programme worth billions are barely conceivable.” Poland’s Prime Minister, Ewa Kopacz, said a No victory would mean “the path of Greece can be only one: leaving the eurozone”.



Greece became the epicenter of Europe’s debt crisis after Wall Street imploded in 2008. With global financial markets still reeling, Greece announced in October 2009 that it had been understating its deficit figures for years, raising alarms about the soundness of Greek finances. By the spring of 2010, it was veering toward bankruptcy, which threatened to set off a new financial crisis. To avert calamity, the so-called troika — the International Monetary Fund, the European Central Bank and the European Commission — issued the first of two international bailouts for Greece, which would eventually total more than 240 billion euros. The bailouts came with harsh austerity terms, requiring deep budget cuts and steep tax increases. They also required Greece to overhaul its economy by streamlining the government, ending tax evasion and making Greece an easier place to do business. Subsequently, Greece’s debt reached 175% of GDP and its unemployment rate shot up to circa 26%–the highest in Europe. Greeks simply had enough and voted in Syriza’s government.

Based on the foregoing, it is difficult to see how Greece can remain in the euro currency zone, and this is primarily due to two reasons.

First, the Greek population has overwhelmingly rejected the harsh austerity proposals advocated by Europe. Whilst Greeks do not want to leave the European Union, they certainly do not want their fortunes tied to a currency that prolongs austerity, catapults the economy into depression and enriches the coffers of the rich creditors.

Second, the present debt situation for the Greek economy is simply unsustainable. The Greek people will not accept a proposal that increases the debt burden in return for bailout money.  They have already brought down governments viewed to be sympathetic to Europe. With further debt payments due to the ECB and other creditors in the month of July, the tussle between Europe and Greece is only bound to increase. The question of how to save Greece, debated for more than five years, is the European Union’s recurring nightmare.

All of this implies that Greece is very close to exiting the euro currency and this has several implications.

  1. The Greek situation, once again underscores the point that economic union of Europe is impossible to achieve without political union. Other crisis such as the global financial crisis in 2008, the present refugee crisis and the conflict in Ukraine amply demonstrate the limitations of the European Union. Unless European countries cede political sovereignty and move towards the model of governance like the one in the US, the EU is doomed.
  2. In a globally connected world, the ramifications of a Greek exit maybe felt beyond the shores of Greece. This is because some of the largest European countries like Germany, Italy, France and others have lent heavily to Greece, and no one truly knows the size of the exposure of their banks to Greece. What further complicates the picture is the interrelationship between American and British banks with their European counterparts. A Greek default may set off a systematic failure of the entire banking system and a new global credit crunch crisis may ensue.
  3. Then there is the issue of the Euro losing its value and trade between different European countries severely impacted. For instance in Britain the UK Prime Minister’s Official Spokesman said, “The chancellor was talking in the House [of Commons] yesterday about the potential exit of Greece and how that presents serious economic risks and of course as part of that we take all steps to protect ourselves from such eventualities.” Countries like India far away from the crisis are anxious about the Greek situation and fear the flight of capital from India. “We will have to see how the euro moves now. We are closely monitoring the Greek situation. There could be some reaction on the Fed rate hike…Greece crisis might impact India indirectly,” said Finance Secretary Rajiv Mehrishi.
  4. Populations in other southern European countries like Italy, Spain, and Portugal are also tired of austerity programmes dictated by Germany and rich Northern European countries, and loath high unemployment, economic stagnation. A Greek exit will provide impetus to populist parties in these countries to push for a similar exit setting off a contagion effect, which will result in the implosion of the EU.
  5. If Europe does not provide debt relief, then Russia may step in to offer some form of relief. In April 2015, the Kommersant Newspaper quoted an anonymous Russian government source as stating: “We’re ready to consider the question of providing Greece discounts on gas: the price for it is tied to the cost of oil which has significantly fallen in recent months. We are also ready to discuss the possibility of granting Greece new loans. But here we, in turn, are interested in reciprocal moves – in particular, in Russia receiving particular assets in Greece.” Europe reacted angrily towards such reports. Martin Schulz, the president of the European Parliament, said on Saturday that it would be “unacceptable” if Mr Tsipras “jeopardised Europe’s common policy on Russia” in return for Kremlin aid. This will be a strategic coup for Putin and a reminder for the rest of Europe that Russia is here to stay despite sanctions and the protracted proxy war in Ukraine.
  6. There is an important lesson for Turkey’s elite, which for some reasons covets membership of the EU. If Turkey had adhered to the gold standard and the accompanying Islamic principles, today it would have not only had a strong economy but an opportunity to unify Cyprus under its control and set an example for European countries to follow its leadership. Furthermore, Turkey and not Russia would be country that Europeans would turn to thereby giving Ankara a stronger role in shaping European affairs.

However, from the perspective of the Muslim world, which is caught up in a bitter neo-colonization drive spearheaded by America and her European allies the Greek tragedy may provide invaluable respite for the Muslim masses opposed to the naked aggression of Western powers. This may also provide enough breathing space and encouragement for sincere elements in the armed forces of the Muslim world to support the establishment of the rightly guided Khilafah.

وَاللّهُ غَالِبٌ عَلَى أَمْرِهِ وَلَكِنَّ أَكْثَرَ النَّاسِ لاَ يَعْلَمُونَ

“And Allah is the master of His affair, but most people do not know.”

(Yusuf: 21)

Abdul Majeed Bhatti